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Systematic risk behavior of financially distressed firms

1976/05/01 by Marion M. Bradford, Richard W. McEnally, Rebecca B. Todd · 1 voice · 783 citations
Agricultural and Biological Sciences · Biochemistry, Genetics and Molecular Biology · Business, Management and Accounting · Chemistry · Economics, Econometrics and Finance · Mathematics · #Absorption (acoustics) #Actuarial science #Biochemistry #Bradford protein assay #Chemistry #Chromatography #Colorimetry #Coomassie Brilliant Blue #Corporate Finance and Governance #Credit Risk and Financial Regulations #Earnings #Econometrics #Economics #Fermentation and Sensory Analysis #Finance #Financial Distress and Bankruptcy Prediction #Financial distress #Financial risk #Financial risk management #Financial system #Leverage (statistics) #Mathematics #Meat and Animal Product Quality #Microgram #Muscle metabolism and nutrition #Organic chemistry #Risk management #Sodium #Sodium dodecyl sulfate #Statistics #Systematic review #Systematic risk

paper · doi:10.1016/0003-2697(76)90527-3

published in Quarterly journal of business and economics 32(3), 3-19 (Elsevier BV)

openalex publication_date 1993/06/22 · openalex created_date 2016/06/24 · openalex updated_date 2026/06/11

Abstract

The apparent decline in systematic or beta risk with the onset of financial distress is a result that has puzzled a number of researchers. This study validates this result with different data and a new criterion for identifying financial distress. An analytical model presented in this study suggests that the leverage-increasing impact of financial distresson systematic risk may be more than outweighed by possible declines in systematic earnings risk associated with such distress, and it provides empirical evidence that is generally consistent with this proposition. The diminution of systematic risk is unaffected by several variants in beta risk estimation, including the index-weighing scheme and allowance for the turn-of-year effect. While numerically large, the average systematic risk decline is not highly significant in a statistical sense due to considerable variation in the behavior of betas from company to company.

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